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A Criticism of the Railroad Corporation Law of Pennsylvania

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A Criticism of the Railroad Corporation Law of Pennsylvania THE AMERICAN LAW REGISTER FOUNDED 1852 UNIVERSITY OF PENNSYLVANIA DEPARTMENT OF LAW VOL. 45 N. S. SEPTEMBER, 19o6. No. 9. A CRITICISM OF THE RAILROAD CORPORA- TION LAW OF PENNSYLVANIA. "Laws," says Voltaire, "are made spasmodically, hap- hazard, unmethodically, just as cities are built. Take the market-places and the wharves, the narrow streets and the crooked alleys of Paris, and compare them with the Louvre and the Tuileries: that is what our laws look Eke... The burning of London was what made her a great city. If you w4nt good laws, burn yours and make new ones. "o Radical advice this; and yet an examination of our Pennsylvania legislation will show that any attempt at systematic constructive work must be preceded by an apparently destructive attack upon our statutes. With- in recent years there has been throughout the United States a general tendency toward the revision and codi- fication of legislation, and Pennsylvania owes to this tendency such valuable acts as the "Service Act," the "Bills and Notes Act," and the "Mechanics' Lien Law," and soon will have it to thank for a comprehensible code of divorce law. The importance of these reforms is tinmeasurable, and 31 501 A CRITICISM OF THE RAILROAD yet the hecessity for none of them was equal to the pres- ent necessity for a reform of our corporation law. Sta- tistics need not be quoted to demonstrate the sudden and immense deevlopment of this phase of industrial activity. The laws passed when corporations were in their infancy were found poorly to fit them in their healthy maturity, and in most of the States the legisla- tors have been busy altering the statutes which could be adapted to the new conditions, and casting aside those so inadequate as to be not worth fixing up. Particularly has this been true in the States nearest to us: New Jersey, which we usually consider ultra-conservative, revised her corporation law in 1896, and the last Legislature consti- •tuted a commission to present as soon as possible a more up-to-date code. Delaware codified her corporation law in I9o, New York in 1892, West Virginia in 1899, Maine in 1904, Massachusetts in 1903, Connecticut in 1903 and Ohio in 1905. Pennsylvania, on the other hand, has not made a single attempt to review her corporation law since the General Corporation Act of 1874 was passed. It is not that the subject is of less moment here than in other States. Dur- ing the last adminstration, that of Governor Stone, there were granted 5,030 charters, not including those granted by the Courts. Nor has the disrepair of this branch of our law escaped notice. In his message to the Legis- lature of 19o5, Governor Pennypacker wrote, "There are many incongruities in our laws with regard to corpora- tions, due largely to the fact that the legislation has often been enacted without sufficiently considering its relation to the general system, and they ought to be corrected. Probably the best method would be to provide for a com- mission of expert lawyers, to be appointed by the Gover- nor, who could go over the whole subject carefully and report a code or what changes may be necessary." A bill was introduced to carry this recommendation into effect, but it did not survive the introduction. It is proposed in this paper to consider only the corpo- ration law bearing on railroads, and even that part of our CORPORATION LAW OF PENNSYLVANIA legislation is so voluminous that it can be discussed only incompletely, our thought being that if we can show even a few serious defects, others will apply themselves to the study of the questions involved, will discover the many faults which we may have failed to notice, and will take steps for their correction.' When we recollect that the capitalization of our rail- roads exceeds the assessed value of all of our taxable real estate, we can realize the gravity of the reproach that "legislation is scandalously loose in Pennsylvania touch- ing railroads,"' but when we remember that this legis- lation began in 1823 and has gone on with fits and starts to the present time, we appreciate that it could not be expected to be either accurate or consistent. The Secretary of Internal Affairs, who has general supervi- sion over railroads, complains that the Act of 14 May, IThe word "railroads" unless otherwise indicated, is intended to designate railroads authorized to carry freight. Formerly railroads were classified as "steam railroads" and "street passenger railways," but now that the Supreme Court has decided that "steam railroads" may use electricity as a motive power: Howley v. Cetral Valley R. R. Co., 213 Pa. 36 (i9o5), the former term has become inaccurate, and since elevated and underground passenger railways may be formed under the Act of 7 June, igoi, P. 523, under entirely different con- ditions and with entirely different powers than "street passenger railways," the latter term, too, no longer is appropriate. The latest legislation drawing a distinction between railroads, divides them into "railroad comnies" and "passenger railway companies:" Act of 5 March, i9o3,P. L. i3, but inasmuch as a railroad certainly is a passen- ger railway, this terminology is extremely artificial. Before the Act of 7 June, 19ox, before mentioned, it would have been correct to dis- tingpish between railroad companies possessing, and railroad companies not possessing, the right of eminent domain, but that Act, bestowing the right of eminent domain on so-called passenger railways, made this test insufficient. If the Legislature give to companies incorporated under the "Street Passenger Railway Act" of 14 May, 1889, P. L. 211, and under the "Elevated and Underground Passenger Railway Act" of 7 June, i9o, P.L.523 , the right to carry freight, as it seems inclined to do, it will be impossible to differentiate the various kinds of railroads except by speaking of them as incorporated under the respective acts of which they availed themselves. Some day there will be one act governing all railroads, as there was from the time the Act of i9 Feb- ruary, 1849, P. L. 79, was passed, until the Act of 4 April, i868, P. L. 62, was adopted, and we shall be as much ridiculed for speaking of a "street passenger railway," as distinct from a "steam railroad," as we ridicule those who spent their days in debating whether an action sounded in debt or in covenant. 2 Per Woodward, C. J., in Com. v. Cross Cit R. R. Co., 53 Pa. 62 (x866), at 68. 504 A CRITICISM OF THE RAILROAD 1889, P. L. 211, providing for the incorporation and reg- ulation of street passenger railways, already is antiquated and in need of revision It can be imagined how much more in need of revision is the law for the incorporation of railroads, twenty years older than that Act, and the law for their government, forty years older. First to be considered are the Acts for- I. THE INCORPORATION AND ORGANIZATION OF RAIL- ROAD COMPANIES. Prior to the Constitution of 1874, the creation of corpo- rations by special act of the Legislature was not only a permissible, but in most cases the only possible method of incorporation. General acts did not exist except for few kinds of corporations. Among these were rail- roads. As early as the Act of i9 February, 1849, P. L. 79, it had been provided that all railroad companies incorpo- rated under special acts should have the same specified rights and privileges except as otherwise stated in the act of incorporation.4 The Act of 4 April, 1868, P. L. 62, per- mitted any persons who should comply with its formal requisites, to form a railroad company, and to build or operate a railroad on the terms prescribed by the Act of 1849 for specially incorporated railroads. There was from 1868 until 1874 nothing to prevent the Legislature from chartering railroad companies specially, and confer- ring privileges not granted either by the Act of 1849 or by that of i868, and many railroads were so chartered after the latter Act went into force, up to 1874. The Act of 1868 authorized the formation of companies "for the purpose of constructing, maintaining and opera- ting a railroad for public use in the conveyance of persons and property, or for the purpose of maintaining and op- 2 Report Sec. Int. Aff., 19o2-3, p. xlv. 4 The Lateral Railroad Act of 5 May, 1832, P.L.Sox, has not been overlooked, but it is not relevant to this article, because it contem- plates the construction of railroads, not by corporations, but by in- dividuals. It constitutes probably the only legislation in Pennsyl- vania granting to unincorporated individuals the right of eminent domain. CORPORATION LAW OF PENNSYLVANIA erating any unincorporated railroad already constructed for like public use." This of course was broad enough to include railroads of any length or gauge, but in 1871 an Act was passed providing for the formation of companies to construct, maintain and operate railroads for public use, not over five miles long, and giving to them all the powers granted in the Act of 1868: Act of 28 April, 1871, P. L. 246. Sec. 2 of the Act permits any corporation formed under the Act of 1868, and electing to organize under the provisions of the Act of 1871, to do so, if a majority of its stock so determines, upon filing with the Secretary of the Commonwealth a certificate of its action and a copy of its articles of association, "and any cor- poration failing, refusing or neglecting so to do, shall be subject to a fine of $50.00." The Act of 1871, it is submitted, is, and always was, absolutely useless and unnecessary.
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